‘Doing the right projects while making smart trade-offs’
Portfolio Management refers to the practice of managing an organization’s new and existing product development projects in view of business and innovation strategies.
Any organization, at any given point in time, has several active product development projects aimed at maintaining their existing portfolio and building new products/solutions to tap into customer value gaps. The organization has a responsibility to manage the competing demands of maintaining existing products vs. creating new products without losing sight of overall value created for itself and its key stakeholders.
Therefore, the typical goals of portfolio management are to:
- Maximize value
- Attain the right balance in risk
- Align with business strategy
- Decide on the right number of pipeline projects
- Meet financial goals
A robust product development portfolio should include the ‘right mix’ of (i) breakthrough projects (also referred to as radical or disruptive), (ii) platform projects (offers the platform for product enhancements or incremental improvements), (iii) derivative projects (product enhancements/revisions), and (iv) support projects (incremental improvements to existing projects). The ‘right mix’ is often set by the business or innovation strategy.
Hence, it’s prudent on the part of the organization to periodically review their product development portfolio to see how it aligns with their strategy. Are the projects consistent with organization’s articulated strategy? What are the specific goals in the business strategy? Does the portfolio investment reflect the strategic priorities?
Additionally, selecting between new product opportunities is never straightforward and involves many tangible, intangible evaluation techniques. It’s easy to focus heavily on the financials of projects, but there are so many non-financial metrics and issues to consider. For example, any disruptive or forward-looking technology is bound to run into regulatory risk. Last but not least, any organization is limited by the resources it has at its disposal. Resource allocation is a critical aspect of portfolio management.
In a nutshell, portfolio management is all about making trade-offs in a dynamic manner in the service of organizational strategy. Smart portfolio management enables you to reconfigure active product development projects as you receive new information, run into resource constraints, fall out of alignment with organizational goals. If done correctly, portfolio management lets you be mindful of the organizational strategy and also lets the organization be nimble enough to capitalize on time sensitive opportunities and threats.
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